PPT - Operating and Service Costing | Cost Accounting - B Com PDF Download

 Page 1


OPERATING COSTING
Page 2


OPERATING COSTING
What is operating costing?
•
Operating costing method is one designed to ascertain 
and control the costs of the undertakings which do not 
produce products but which render services
•
Also known as service costing
•
Operation costing is the cost of rendering services
•
It is the cost of producing and maintaining a service
•
Industries using operating costing do not produce 
tangible poducts ; but useful service is rendered; for 
eg-transport services, utility services like hospitals, 
canteens etc, distribution services like supply of 
electricity, gas etc.
Page 3


OPERATING COSTING
What is operating costing?
•
Operating costing method is one designed to ascertain 
and control the costs of the undertakings which do not 
produce products but which render services
•
Also known as service costing
•
Operation costing is the cost of rendering services
•
It is the cost of producing and maintaining a service
•
Industries using operating costing do not produce 
tangible poducts ; but useful service is rendered; for 
eg-transport services, utility services like hospitals, 
canteens etc, distribution services like supply of 
electricity, gas etc.
Service Costing
Service or operating cost is the cost of providing service. The 
term service costing is applied to describe the system used to 
find the cost of performing a service such as transport, gas or 
electricity.
•
Services rendered to customers are of unique and 
standardised type
•
Distinction between fixed cost and variable cost is of special 
importance as the scale of operations considerably affects the 
cost per unit of service rendered
•
A large chunk of total capital invested in fixed assets and 
relatively less working capital is required
•
The method of costing is different from that used in connection 
with production and difference lies mainly in the manner of 
accumulating the cost data and finally in its allocation to cost 
units
Page 4


OPERATING COSTING
What is operating costing?
•
Operating costing method is one designed to ascertain 
and control the costs of the undertakings which do not 
produce products but which render services
•
Also known as service costing
•
Operation costing is the cost of rendering services
•
It is the cost of producing and maintaining a service
•
Industries using operating costing do not produce 
tangible poducts ; but useful service is rendered; for 
eg-transport services, utility services like hospitals, 
canteens etc, distribution services like supply of 
electricity, gas etc.
Service Costing
Service or operating cost is the cost of providing service. The 
term service costing is applied to describe the system used to 
find the cost of performing a service such as transport, gas or 
electricity.
•
Services rendered to customers are of unique and 
standardised type
•
Distinction between fixed cost and variable cost is of special 
importance as the scale of operations considerably affects the 
cost per unit of service rendered
•
A large chunk of total capital invested in fixed assets and 
relatively less working capital is required
•
The method of costing is different from that used in connection 
with production and difference lies mainly in the manner of 
accumulating the cost data and finally in its allocation to cost 
units
Cost Unit-Selection of cost unit is 
different in operating costing
SNO
NAME OF THE 
UNDERTAKING
COST UNIT
1
Passenger transport
Passenger km/mile
2
Goods transport
Ton mile/km
3
Hotel lodging
Per bed, per person, per day
4
Hospitals
Per bed, per day, per operations, per patient, 
per test, per x-ray etc.
5
Electricity
Kilowatt-hour
6
Boiler house
Kilograms of streams supplied
7
Cinema theatre
Man-show
8
Canteens
Meals served, cups of tea sold
9
Gas works
Per 100 cubic ft produced
10
Water supply
Per 1000 gallons
Page 5


OPERATING COSTING
What is operating costing?
•
Operating costing method is one designed to ascertain 
and control the costs of the undertakings which do not 
produce products but which render services
•
Also known as service costing
•
Operation costing is the cost of rendering services
•
It is the cost of producing and maintaining a service
•
Industries using operating costing do not produce 
tangible poducts ; but useful service is rendered; for 
eg-transport services, utility services like hospitals, 
canteens etc, distribution services like supply of 
electricity, gas etc.
Service Costing
Service or operating cost is the cost of providing service. The 
term service costing is applied to describe the system used to 
find the cost of performing a service such as transport, gas or 
electricity.
•
Services rendered to customers are of unique and 
standardised type
•
Distinction between fixed cost and variable cost is of special 
importance as the scale of operations considerably affects the 
cost per unit of service rendered
•
A large chunk of total capital invested in fixed assets and 
relatively less working capital is required
•
The method of costing is different from that used in connection 
with production and difference lies mainly in the manner of 
accumulating the cost data and finally in its allocation to cost 
units
Cost Unit-Selection of cost unit is 
different in operating costing
SNO
NAME OF THE 
UNDERTAKING
COST UNIT
1
Passenger transport
Passenger km/mile
2
Goods transport
Ton mile/km
3
Hotel lodging
Per bed, per person, per day
4
Hospitals
Per bed, per day, per operations, per patient, 
per test, per x-ray etc.
5
Electricity
Kilowatt-hour
6
Boiler house
Kilograms of streams supplied
7
Cinema theatre
Man-show
8
Canteens
Meals served, cups of tea sold
9
Gas works
Per 100 cubic ft produced
10
Water supply
Per 1000 gallons
Classification of Costs
1.Fixed costs or standing charges
2.Semi-variable costs or manufacturing charges
3.Variable costs or operating-running charges
Characteristics
?
These undertakings render unique services to their 
customers
?
They invest large proportion of their capital in fixed 
assets
?
The requirement of working capital comparatively is less
?
The operating cost is divided into fixed and variable and 
they are of utmost importance